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Contributed by Sarabjeet Chawla


Is it Fair-To tax advertising agencies on discount and incentive earned from media?


Advertising agencies are not only engaged for creative work by their clients, but also for releasing advertisement/ content in print and electronic media.

Agencies typically earn a discount of 15% from media on release made through them. Further agencies also earn discount / incentive from media on basis of volume of release in a particular period. Various issues are raised from time to time on taxability of the above.


1.Issue: Can tax be demanded on 15% discount earned by the advertising agency?

  1.  Three parties are typically involved in a media release:

  • Adv. Agency   : Dealing with both Media and Client

  • Media             : Releasing content, no relation with client of adv. agency

  • Client              : For whom release is done, has no contract with media


It is contended by Revenue that though content is released in media by the agency, it (agency) gets remunerated in form of 15% discount on media bill. Further it is also immaterial that how much of discount is passed by the agency to its client as the benefit of 15% is already accrued.

Definition of taxable service

U/s 65 (105) (e) of the Finance Act, 1994, taxable service means any service provided or to be provided to any person (client till 15-05-2008), by an advertising agency in relation to advertisement, in any manner.

Though the scope of service receiver has been widened w.e.f. 16th May 2008, it does not alter the position that the agency does not provide any service to media, but to clients/any person.

The agency does not receive any amount from media and neither is providing any service to the same, hence the discount received from it, should not be taxable.


Case Laws

Similar issue has been examined by Hon’ble Tribunal in McCann Erickson (India) (P.) Ltd, 2008-17-STT-220-New Delhi CESTAT wherein it observed that:

  • The appellants were receiving 15% agency commission from authorized broadcasting and print media during the period April 2000 to March 2001 and they had passed on the above mentioned commission to their clients.

  • The case of the department is that the appellants should have included the whole amount of commission received by them in the gross taxable value.

  • The basic point which should be borne in mind is that service tax is levied on the gross amount received by the service provider from the recipient of the service for the services rendered.

  • In this case, the appellant is the service provider. The appellant being an advertisement agency rendered advertising service by engaging print, electronic media etc.

  • The tax authorities should see whether the appellants had discharged duty liability on the gross amount received from their clients.

  • In this case, various media are not clients of the appellant namely, the advertising agency. If the media gives discount of 15% to the appellant, that amount has nothing to do with the gross amount received by the appellant from their clients to whom they rendered advertisement services. Therefore, there is no logic in demanding service tax on the discount of 15% received by the appellant from print media.


Case law of Euro RSCG Advertising Ltd. Vs. CCST, Bangalore [2008] 16 STT 232 (Bang. - CESTAT) is also relevant wherein the issue was decided in favour of the appellants.


  • A person or an organization who wants to advertise their product approaches an advertising agency. Therefore such a person/ organization who wants to avail the services of advertising agency becomes the client of the advertising agency.

  • The advertisement can be done in various ways either through Print Media or through Radio or Television, etc. in order to fulfill the requirements of his client the advertising agency which is the service provider gets in touch with the appropriate media. In other words as far as the advertising agency is concerned, its client is not the media.

  • In order to provide advertising services the advertising agency charges certain amounts from the clients. Such amounts are liable to service tax.

  • With regard to the relationship between the advertising agency and the media, the advertising agency has to pay amount to the media and not the other way. To put it differently, the media such as broadcasting agency charges the advertising agency for insertion of the advertisement either in Print Media or in Television.

  • The appellants have demonstrated that they have not received any amount from the media. They got only a discount from them. Perhaps the word "commission" is misleading. There is actually no evidence that the said amount has been received by the appellant from the media.

  • In any case, any amount received by the service provider from his client only is liable to service tax and not amounts received from others.


2.Issue: Tax on cash discount/ target incentive

Advertising agencies get cash discount on account of early payment or advance payments to media for release. Further they also get incentive on achieving targets. Cash discount is an income from the payment of bills and not for the services rendered to their clients. Further incentives received are not related to the service rendered to their client nor is it passed on to their clients. The issue arises that whether tax can be demanded on cash discount/ target incentive received by the advertising agency. The answer is negative in light of the following judicial pronouncements.


Case Laws

Hon’ble Tribunal has given its observations regarding target incentives / cash discounts received from media in Euro RSCG Advertising Ltd. cited supra as:

  • Since these amounts have not been received from the clients of the service provider (the appellants) there is no liability of service tax on these amounts.

  • Cash discount was clarified as “an income from payment of bills in advance and not from services rendered to clients and does not attract service tax.”

  • Target inventive is received from certain publications after they reached certain targets of advertising business given to them. It is in no way connected to service rendered to the clients nor is billed to the clients.


In case of Kerala Publicity Bureau vs. CCE, [2007] 10 STT 457 (Bang.- CESTAT), the Audit found that they the appellants had collected incentives from M/s. Malayala Manorama and considered it as extra commission and had proceeded to recover service tax. The Tribunal following in its own judgment in Euro RSCG Advertising Ltd. cited supra set aside the adjudicating order.

Unconditional stay was granted on similar grounds in Marketing Consultants & Agencies Ltd vs. CST [2007] 6 STT 318 (BANG. - CESTAT) wherein Hon’ble Tribunal held that

“On a prima facie consideration, we notice that the service tax is levied on the advertising charges paid by the clients of the appellants, while this cash discount is not paid by the clients but they received the same from the media to whom the advertisements are booked. There is no direct link between the cash discount and the advertising charges collected by the appellants from the clients. Prima facie, the ground taken by the appellant is sound and requires to be accepted.”



Though above decisions are conclusive in themselves, agencies will surely have to fight their way out to claim benefits arising from same as there is little doubt that department will easily let go its revenue.

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